SAAB: Symptom Of A Bailout Culture

SAAB Automobile AB announced today that, for the sixth month in a row, they can’t meet payroll.

The backstory for this American audience: Saab first announced difficulties paying its employees in April. The employees (better-known in socialist speak as “workers”) ceased working, and have been collecting government unemployment benefits equal to their full salaries ever since.

Saab’s financial difficulties began in the late 1988, when the company reported a loss for the year. The company failed to turn a profit in 1989. In 1990, 51% of Saab’s car division was sold to General Motors..

GM’s mismanagement of Saab paralleled GM’s mismanagement of itself: Saab made a substantial profit only one year of the 1990s- in 1995, with excellent European sales of a newly-redesigned Saab 900 launched the previous year. Despite mediocre sales, GM decided to acquire the remaining Saab shares in 2000.

From 2000 to current, Saab has only made a profit in one year: 2001.

Saab’s underperformance worsened in recent years, trending with the rest of the world’s economic downturn.

In 2009, Saab appealed to Swedish courts to be separated from General Motors ownership. Among the issues cited: GM had, for years, been reporting Saab-brand sales as GM-brand sales. This effort failed, but Saab was eventually sold to Spyker Automotive in 2010. Among the condition of the sale were loan guarantees from the Swedish government to Saab. The Swedish government stated that Saab was too important to Sweden’s economy to fail.

The Swedish government itself is partly to blame for Saab’s financial troubles: under Swedish law, once an employer hires an employee, the employer must continually employ that person until the employee resigns, commits misconduct, or the company declares bankruptcy. Layoffs for ‘just cause’ due to insolvency require government approval and mandatory negotiation with the employees’ union representation. In other words, layoffs are illegal in Sweden unless approved by the employees’ union and the government.

Another government issue for Saab: The burden of payroll taxes imposed on employers. Saab reportedly owes employees $5.5 million in salary for the month of November, and owes the Swedish government approximately $10-15 million- two to three times its payroll– in payroll taxes and ‘social fees’ to the Swedish government for the same period.

So let’s review: Saab has been a money-loss for more than two decades, but because it’s “too big to fail”, it’s been propped up with government loan guarantees and subsidies. Government regulations and government taxes and fees- used to fund the Swedish government’s social programs- have been crushing the profitability of this company. And collusion between the Swedish government and labor unions have prevented Saab from taking reasonable steps to manage expenses.

Sound familiar, anyone?